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Business Opportunities in Costa Rica

Many countries severely restrict foreign business investment. Anxious to develop their own industry, these governments
grant special considerations to local businessmen to the detriment of foreign investors. The rationale behind this practice is
that foreign investors only want to take advantage of low wages and slack government controls to generate high profits,
which are then spent in the foreigner’s home country. They’d rather we foreigners didn’t bother them,
that we don’t compete with locals. Costa Rica takes a different view of foreign investment, looking upon it as a way to spur development. Any
investment that promotes tourism, creates jobs and doesn’t harm the environment is considered desirable. Instead of
discouraging investment, Costa Rica offers generous incentives and tax breaks. Depending on the type of
business, there can be a 12-year exemption from income taxes as well as waivers on import duties. If ecology is
concerned—particularly projects involving reforestation the tax exemptions can be forever!
A growing number of businessmen and investors are discovering that Costa Rica, in addition to having a
wonderful climate for vacations, also offers a pleasant
business climate. Among the things Costa Rica has going for it are political stability, a strategic location, an
inexpensive labor force and an up-to-date infrastructure. Governmental incentives, in addition to tax breaks, include lines of
financing for specific industries, elimination of customs duties on importation of primary materials and equipment and a Free
Zone program. In recent years, millions of dollars have been invested in Free Zones, of which approximately 65 percent is of
U.S. origin. This Free Trade Zone program was developed for foreign- owned firms for the operation of exporting enterprises
and related industries. Generous tax exemptions are granted on all types of equipment, machinery, merchandise and goods
needed for operation. Depending upon where the enterprise is located, up to ten years’ tax exemptions are granted
on property, real estate transfers, net capital and assets. Up to 100 percent exemptions on profits or other taxable income
is granted for the first eight years of operation and is at a lower rate for the next four years. Firms operating in Free Zones
can also sell up to 40 percent of their production in Costa Rica, with approval of the Ministry of Economy, Industry and
Commerce. (Regular customs duty must be paid on these sales.) Investments of $50,000 or more in specially approved
projects qualify the investor for residency and eventually, a Costa Rican passport. With $200,000, the
investment can be in any enterprise. Because of these regulations, an unusual twist on Costa Rican investment is being
played out in Hong Kong. Residents there fear what might happen when the People’s Republic of China takes over
the British Crown Colony in a few years. Therefore, by becoming legal residents of another country, such as Costa Rica,
Chinese businessmen feel secure in the event conditions get tough in Hong Kong. Simply by investing $50,000 in a teak
plantation, they obtain residency; they don’t really care whether they make money on their investment. They look on
the $50,000 as an insurance policy. At least one American resident of Costa Rica is taking advantage of this situation. He
purchased a large cattle ranch, planted teak, and now has salesmen in Hong Kong, soliciting investment in his project.
Having said all of this, I need to add that reforestation projects aren’t just a matter of deciding to start planting. You
need to present detailed plans prepared by an approved forestry technical expert (a member of the Forestry Professionals of
the General Forestry Office). The property, once planted, can be resold, as long as the purchaser agrees to continue with
the reforestation project. More about reforestation later on.